Benefit LLC: To Be or Not to Be
Corporate Social Responsibility (CSR) and Corporate Citizenship are popular current watchwords, the ignorance of which may cost your company customers. Paying attention to the triple bottom line of “people—planet—profits” is important for good business. One outgrowth of this market shift has been the adoption of the designation of “Benefit Corporation” by two-thirds of states—including Utah. Benefit corporations expand the fiduciary duty of directors to require them to consider non-financial stakeholders as well as the financial interests of shareholders. While there may not be direct tax incentive to becoming a Benefit Corporation, there is legal protection for doing good, even if it costs the shareholders money.
A handful of states have gone further to extend the “Benefit” designation to LLCs. Utah is considering such legislation. In my recent testimony on the subject before the Utah State Business and Labor Interim Committee, I came to an epiphany on the matter. As questioned by committee members, it seemed clear that most LLCs do not have a long list of shareholders (partners/members) who may take legal exception to the LLC’s focus on anything besides shareholder return. Therefore, what benefit is the designation for LLCs? Is it just a slick marketing ploy, as one committee member suggested?
Another committee member suggested that as a state, Utah is wise to promote good corporate citizenship and “doing good” by businesses. That is demonstrated by dozens of Utah businesses now contributing to disaster relief in and outside the United States. This concept resonates, but is there more? I would suggest yes.
“Benefit LLCs and the resulting annual report requirement focuses the company and informs the marketplace of its intentions,” said Steve Klass, director for P3 Utah, an organization advancing the triple bottom line. “We hope to see this designation take roots here to demonstrate leadership by the state.”
There are now some 4,000 Benefit Corporations in the United States. They must report annually not only to shareholders but to the larger community on non-financial goals and results. Many companies now use such efforts to differentiate from competitors not yet “getting the memo” on CSR. Shouldn’t LLCs have the same opportunity for competitive advantage?
“We want to encourage businesses doing good things in the state,” said Rep. Keven Stratton, bill sponsor and supporter for both the Benefit Corporation and Benefit LLC movement. “Allowing Benefit LLC designation recognizes and further encourages private-sector stakeholders to innovate and solve challenges faced in our communities.”
Consider the marketplace. The millennial generation is among the most socially conscious of any generation to date, and they are poised to take over purchasing power in the tens of trillions of dollars. The Director of Corporate Citizenship for Deloitte reports that some 70 percent of millennials feel that corporate social responsibility would influence their decision on where to work and where to put their consuming dollars. The Fortune 500 currently spend $15 billion a year on corporate social responsibility. The Governance and Accountability Institute reports that sustainability reporting has risen from 20 to 80 percent over just the last few years.
Perhaps an unintended consequence, does not the Benefit Corporation potentially have an unfair advantage over LLCs? Companies market that they have a CPA, or an RN, or are nonprofit. These designations matter when recruiting workers and targeting a new market. Eighty percent of new Utah businesses now choose LLC designation for tax purposes. Might these for-profit businesses focused on the triple bottom line like to use that in legitimate promotion? And, does this not challenge other companies to take CSR seriously as a market mandates?
I believe this is a communications issue, a competitive issue, a hiring issue, perhaps a helping Utah compete issue. If Utah LLCs are to effectively compete with larger companies for staff, partners and customers, we are wise to recognize and adapt to market trends. The Benefit LLC focus on people, planet and profits will certainly be of growing importance in future markets. Utahns are known for doing good. Perhaps this new designation encourages new businesses to do the same.
John Pilmer, APR is CEO for PilmerPR, LLC and is a public relations, marketing and business advisor for emerging companies. He holds a BS degree from Brigham Young University and an MBA from the University of Utah. He is a sought after speaker, community activist and also teaches entrepreneurship at Utah Valley University. He has a passion for corporate social responsibility and serves on the Utah Valley Clean Air Task Force.